However, negotiations were going slow on another controversial measure requiring Wall Street banks to spin off their swaps desks. Top White House and Treasury officials were holed up with Democrats in backrooms talking about how to crack down on risky bets.

For nearly two weeks, a negotiating committee of 43 lawmakers has been reconciling the House and Senate versions of the most sweeping overhaul of the financial regulatory system since the 1930s.

The Wall Street reform bills aim to strengthen consumer protection, shine a light on complex financial products, create a new process for taking down giant, failing financial firms, and make them stronger to prevent such failure.

Lawmakers leading the talks insisted that the panel is on track to complete negotiations by the day's end, with the goal of preparing the bill for final passage by each chamber next week.

However, as the clock ticked toward midnight, lawmakers still faced a lot of ground to cover. They had yet to begin debate on derivatives, which Dodd said would take a "couple of hours."

Lots to do

One of the biggest outstanding issues involve the so-called Volcker Rule -- first proposed by former Federal Reserve Chairman Paul Volcker -- which would prevent banks from owning hedge funds and trading for their own accounts.

The Senate's latest version would gives regulators less discretion in the effort.

It's also watered down in several ways: It doesn't impact insurers. And it allows some proprietary trading in areas, such as government debt, for hedging purposes and small business investments.

As for banning banks from owning hedge funds, the provision allows Wall Street banks that take commercial deposits to sink as much as 3% of capital in hedge funds or private equity.

Consumer groups and policy analysts watching the negotiations noted that 3% of a giant Wall Street bank's capital means billions could still be invested on risky bets.

"Three percent of Goldman Sachs' capital is a big number, and it enables very large funds," said Raj Date, executive director of the Cambridge Winter Center for Financial Institutions Policy.

Also, for some banks, the provision may not fully go into effect for up to seven years, according to an analysis by Jaret Seiberg, an analyst with Concept Capital's Washington Research Group.

"This long implementation period means we will cycle through several elections before this takes full effect," Seiberg noted in a research report.

Senate Banking Chairman Sen. Christopher Dodd, D-Conn., said he was trying to strike the right balance of limiting risky banking activities without preventing banks from financial firms from proper hedging against legitimate risks.

"We think the overall effect of the amendment we're offering is to strengthen the limitations of proprietary trading," Dodd said.

Lawmakers were also considering an even tougher provision that prevents big banks from making risky bets and having access to emergency taxpayer-backed loans. As originally proposed by Sen. Blanche Lincoln, D-Ark., that ban would have required banks to spin off their departments that trade derivatives.

But lawmakers had yet to begin debate on that.

Additionally, they'll discuss general differences on the bills that aim to shine a light on derivatives.

Both bills push many derivatives onto clearinghouses and exchanges that can better pinpoint the value of the securities and create firewalls between buyers and sellers. However, the House version allows more leeway for financial firms to avoid exchanges and avoid posting collateral on such contracts.

Pro-consumer groups have been pushing lawmakers to instead adopt the more stringent Senate version of the bill, which includes an exemption for so-called commercial end-users, such as an airline that is trying to hedge against the changing price of jet fuel

Wall Street firms, however, would be shut out from that exemption. The financial industry has long opposed the measure, as it would take a bite out of profits within their trading business.

Progress made

The panel has made progress on many items of contention.

Resolution fund: On Wednesday, lawmakers agreed to go with a Senate measure to pay to unwind failing financial firms by taxing banks after a major collapse. But lawmakers plan to require some sort of repayment plan get lined up before any money goes toward taking down a failing firm.

Capital cushions: They're also on track to weaken a Senate provision requiring banking parent companies to bulk up their capital cushions with assets that can be more easily converted to cash. The Senate measure would cause all banks to have to raise a lot of money. House negotiators are concerned about the impact, especially on smaller banks and pitched ways to weaken the measure.

Lawmakers are moving toward allowing those bank holding companies with less than $15 billion in assets to "grandfather" in existing assets under existing rules. But banks would have to move toward tougher standards for new securities within five years, starting no later than two-and-a-half years from now.

Consumer protection: They also agreed to house a consumer protection regulator inside the Fed and give it power to regulate credit cards and mortgages, but not auto dealers who make auto loans.

Fiduciary duty: Lawmakers also still must decide several key issues, including how to hold accountable those stockbrokers who cater to retail investors.

The House had wanted to require brokers to behave more like other investment advisers, forcing them to act in the best interest of their clients, even if their clients are small-time investors, including individuals and municipalities. The weaker Senate version would study the issue. Lawmakers agreed to a six-month study of the issue, and then authorized the Securities and Exchange Commission to come up with a way to hold stockbrokers more accountable.

Annuities: Lawmakers also agreed to strip from SEC oversight the regulation of life insurance products called equity-indexed annuities. These are contracts in which customers pay a lump sum upfront in exchange for monthly income over time, pegged to some index. Fixed and equity-indexed annuities are considered insurance and regulated at the state level.

The SEC has been trying to step in and start regulating these products, after complaints that some seniors don't understand the full extent of fees that can hit the value of the investment.

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